What Are the Different Types of Corporate Finance?
Finance is a broader term encompassing various aspects of economic activity: financial planning, investment, business valuations, tax planning, estate planning, etc. Finance is the application of the science of funds management to solve economic problems. It includes various subjects like savings, investing, debt, business valuations, corporate finance, mortgage, etc. The key objective of Finance is to apply principles of the science of funds management to solve economic problems by optimizing the use of assets, generating an income from investment and saving the resources which could be used for productive purposes.
Investing in Finance entails both buying and selling of securities. The buying of securities implies raising of funds through the sale of securities to raise money for the fulfillment of some purpose. While the selling of securities signifies the process of getting rid of unproductive cash by liquidating non-performing financial assets, like accounts payable, loans, and leases, through stock exchanges or mutual funds. There are many types of transactions involved in the field of Finance. Some of them are discussed below.
Corporate Finance In the context of corporate finance, the term refers to the business dealings of raising funds for the fulfillment of various financial activities. The most common example of this would be the purchase of long-term assets like land or buildings from other firms, for the construction of commercial or residential properties. Another well-known type of corporate finance is the financing of acquisitions. Some other examples include mergers and acquisitions, share buying, investment in certain businesses or areas, or even the merging of various companies to form larger ones.
Savings Account: A savings account is one of the simplest ways of creating a line of finance. It can be used to purchase securities like bonds, corporate stock, savings accounts, certificate of deposits (CDs), and money market funds. These can be financed with the help of credit cards, bank overdrafts, deposit cards, department store cards, paycheck cash loans, and loans from the Small Business Administration (SBA). The interest rates on such financing are relatively low as compared to other forms of corporate finance.
Tax Management: This type of finance revolves around investing in tax-deferred funds. Such funds mature immediately and carry tax deferral until such time they are disbursed. Thus, the investor maintains his capital during the period that the funds are not required for immediate consumption. This ensures a higher rate of return on his savings in comparison to the short-term interest rates prevailing in most cases of short-term finance.
Business Finance Cash Flow: This term is actually a subset of business finance. It focuses on the flow of funds within a business. Some business owners may withdraw cash from their savings account and use it for immediate working capital requirements. Some others may use the funds to purchase raw materials, plant and machinery, and advertising. However, the aim here is to generate a smooth cash flow that enhances profitability. Cash flow in this case is also known as the reserve fund of a corporation.